Local businesses get a much-needed boost with Jubilee Budget: KPMG

Innovation and productivity are at its core.

The forward-looking Budget 2015 will allow local businesses to take a much-needed breather from the painful bite of restructuring, KPMG analysts said.

According to Tham Sai Choy, Chairman of KPMG Asia Pacific and Managing Partner at KPMG in Singapore, this year’s budget was an opportune time to take stock of the progress of the country’s productivity and innovation initiatives. 

“We are especially heartened that innovation will be more widely recognised and made more accessible to SMEs. This will position Singapore companies well for regional opportunities and competition with the advent of the ASEAN Economic Community later this year. Budget 2015 underscores the Government’s resolve to raise topline growth and focus more on value-creating activities -- the demand side of the equation -- which will ensure Singapore’s relevance and competitiveness in the next 50 years. We must press on with our focus on productivity as a growth driver,” he said.

“A high concentration of the tax proposals are skewed towards Singapore businesses and this is in the right direction as we move towards grooming our businesses from productivity adoption to innovation and internationalisation. These initiatives are critical in nurturing a new generation of businesses to create values and venturing abroad,” added Tay Hong Beng, Head of Tax at KPMG in Singapore.

Here are more reactions from KPMG analysts on salient points of the budget:

Tax incentives
Enhancing the incentives to promote innovation is the right step forward as we mature from a value adding to a value creation economy. Branding has also been mentioned as a key factor in internationalisation. However, it would have been a much more complete package if there were a new tax incentive to recognise and promote strong Singapore internally generated brands.

The enhanced M&A tax incentive has now made it even more compelling for businesses to come together and consolidate. This should inject a much needed interest and enthusiasm in the SMEs segment where consolidation would result in a much competitive business venture especially when venturing abroad.

Tay Hong Beng, Head of Tax at KPMG in Singapore

Minister Tharman responded to calls from SMEs to provide support for internationalisation especially in areas of double tax deduction for salary costs. However the effectiveness of this initiative will be in the details. Although co-funding by the Government of the Wage Credit Scheme will reduce from 40% to 20% for 2016 and 2017, the extension of the scheme is a welcome move to help address rising labour costs for businesses. The gradual phase out will push businesses to restructure in the tight labour market.
Toh Boon Ngee, Tax Partner at KPMG in Singapore

The extension of the corporate tax rebate for a further 2 years of assessment is a welcome boost for SMEs as Singapore continues to transform itself in the current prolonged sluggish growth in the global economy. The extension of the income tax and GST concessions for S-REITs for another 5 years is much anticipated and welcomed by the S-REIT market. This will ensure Singapore’s continued dominance as a hub for Reit listings in Asia in the foreseeable future.
Leonard Ong, Tax Partner at KPMG in Singapore

Skills Future Credit

The skills future credit scheme is a very innovative way of underpinning the importance of skills upgrading for Singaporeans. More importantly, it clearly empowers the individual to take charge of the nature and timing of enhancing and upgrading of his or her own skills. The Government clearly feels that the individual best knows his own training needs.
Alan Lau, Tax Partner at KPMG in Singapore

Support for SMEs

The freezing of levy of manufacturing and construction sectors are welcome. It will give companies time to restructure.

The extension of wage credit scheme and tax rebates for another two years are good news for local enterprises in tackling wage costs. At this juncture, no mention of rental costs that plaque many SMEs. Some form of assistance in rental costs would be helpful.

SMEs can now go to SPRING to apply for Capability Development Grant to fund their R&D study (projects below $30k). Application and approval process will be a lot easier. A good scheme to entice SME to undertake R&D projects through current R&D PIC scheme as not all SMEs are profit making to enjoy immediate benefit, so better to get a grant from SPRING than to enhance tax deduction under the PIC scheme.
Chiu Wu Hong, Tax Partner at KPMG in Singapore

The government clearly recognises that one of the main stumbling blocks that hampers the development of local entrepreneurial spirit is the the challenging funding gap currently faced by many start-ups and SMEs. More importantly, under the new scheme, the government steps in to co-share the funding risk together with private sector financial institutions. Such co-sharing of risk is not only an innovative feature, but also lowers the commercial risk faced by banks involved in such early-stage funding business.
Alan Lau, Tax Partner at KPMG in Singapore

The renewed commitment to encourage pervasive innovation, first mentioned as far back as Budget 2008, will be important especially for SMEs. Encouraging innovation in SMEs through the Capability Development Grant is a top-down approach which could have limited reach; instead, a broad-based market-driven incentive would have been a better tool to encourage all types of innovation.
Harvey Koenig, Tax Partner at KPMG in Singapore

The Transition Support Package will be welcomed by SMEs. However, given the general high cost of conducting business in Singapore, it would have been helpful if the government could continue to co-fund 40% of wage increase given to Singaporean employees, instead of a lower rate of 20% for 2016 and 2017.
Gan Kwee Lian, Tax Partner at KPMG in Singapore

Increase in personal tax

The increase in top-tier personal tax rate from 20% to 22% wef YA2017 is unlikely to trigger any immediate adverse impact on Singapore's ability to attract top individuals to relocate, work and live in Singapore. The country continues to be a strong draw for its clean image, strong security, good liveability and most importantly, meritocratic system.
Alan Lau, Tax Partner at KPMG in Singapore

The top marginal personal tax increase to 22% will only affect the top 5% of taxpayers, however these individuals are typically more mobile. Any impact on attracting and retaining these taxpayers to live and work in Singapore may only be known over the longer term.

Dennis McEvoy, Tax Partner at KPMG in Singapore